To allow electronic commerce to develop, it is vital for tax systems to provide legal certainty (so that tax obligations are clear, transparent and predictable), and tax neutrality (so there is no extra burden on these new activities as compared to more traditional commerce). The potential speed, untraceability and anonymity of electronic transactions may also create new possibilities for tax avoidance and evasion. These need to be addressed in order to safeguard the revenue interests of governments and to prevent market distortions. … The goal is threefold: to provide legal certainty, to avoid undue revenue losses, and to ensure neutrality.
– A European Initiative in Electronic Commerce, April 15, 1997
It is by now a well-worn cliche to say that we live in an era of rapid technological and social change. Technologies and businesses that were unknown a few years ago are now widespread. Most recently, the explosive growth of telecommunications technology, sometimes referred to as the “Global Information Infrastructure,” or the “Information Superhighway” which includes the Internet, has enabled people to communicate and exchange information on an unprecedented scale. These technologies present tremendous opportunities to enrich all of our lives in so many ways, many of which we are likely not to have envisioned. As President Clinton has said, “The day is coming when every home will be connected to it, and it will be just as normal a part of our life as a telephone and a television. It’s becoming our new town square, changing the way we relate to one another, the way we send mail, the way we hear news, the way we play.”
These new technologies bring with them social changes and new ways of doing business. Services are an ever-growing sector of the economy. Modern telecommunications allow information , services, and money to be instantaneously transferred anywhere in the world. Some have even speculated that the traditional corporation could itself become obsolete in certain cases as “virtual corporations” bring together varying groups of consultants and independent contractors on a project-by-project basis. These technological advances may put particular pressure on the principles governing the taxation of transnational transactions. It is the very nature of these developments that they tend to blur national borders and the source and character of income. Consequently, significant issues often arise regarding how the income arising from transnational transactions utilizing these technologies should be treated under current rules. As a result, it is possible that countries will claim inconsistent taxing jurisdiction, with the attendant possibility that taxpayers will be subject to international double taxation. If these technologies are to achieve their maximum potential, this must be avoided. The overall tax policy goal in this area should emulate policy in other areas — maintain neutrality, fairness and simplicity — a policy which serves to encourage all desirable economic activity new and old.
New information and communications technologies such as the Internet are creating exciting opportunities for workers, consumers, and businesses. Information, services, and money may now be instantaneously transferred anywhere in the world. Firms are increasing their imports and exports of goods, services, and information as the costs associated with participating in global markets plummet, and they are forming closer relationships with suppliers and customers around the world. New markets and market mechanisms are emerging. These new technologies, particularly communications technologies including the Internet, have effectively eliminated national borders on the information highway. As a result, crossborder transactions may run the risk that countries will claim inconsistent taxing jurisdictions, and that taxpayers will be subject to quixotic taxation. If these technologies are to achieve their maximum potential, rules that provide certainty and prevent double taxation are required. In order to ensure that these new technologies not be impeded, the development of substantive tax policy and administration in this area should be guided by the principle of neutrality.
THE WORLD WIDE WEB AND ELECTRONIC COMMERCE
The World Wide Web. The World Wide Web (“WWW” or “Web”) is one of the fastest growing applications of the Internet. What distinguishes the Web from other components of the Internet is that it is a multimedia, hypertext system. Unlike other Internet services, the Web blends text, images, video and audio instead of displaying simple text. Web documents are hypertext documents that can contain links to other documents which can be accessed by “clicking” on these links. In fact, the links could be to any other “WWW” document on any Internet server anywhere in the world. Accessing the Web requires a browser program. The browser reads information accessed from the Web and presents it to the user in a standard format. Internet search tools allow users to locate Web pages containing the desired information.
Web pages and Web sites. A company’s or individual’s collected Web documents are usually referred to as a “Web site.” A uniform addressing system allows users around the world to access information on any Web site. The information is stored in the form of Web documents and pages on central computers called servers. The location of a server is irrelevant since it can be accessed by users around the world.
“Electronic commerce is the ability to perform transactions involving the exchange of goods or services between two or more parties using electronic tools and techniques.” The growth of electronic commerce will be driven in part by the fact that two of the present economy’s important products are software and recorded entertainment (both films and music) which are particularly well suited to being distributed through computer networks.
Retailing and wholesaling. Web pages are now supplementing paper catalogs for many mail order companies and wholesalers. These Web pages are similar to pages from a paper catalog, displaying images of the goods and product information. Links to the vendor’s inventory control system can make it possible to verify whether the requested goods are in stock. For example, one such Web site is a bookseller that allows customers to search a database of over one million books, searching by either subject or name. It is open twenty-four hours a day and has customers in over 60 countries. This Web site does not merely allow customers to select and order books but also recommends related titles and will automatically notify customers when a desired book is published.
Computer software. Computer software, which is created and used in digital form, can be sold and delivered electronically. Software may be transferred directly from the seller’s computer to the purchaser’s computer without the need to deliver a floppy disk or CD-ROM. One such electronic software vendor allows customers to select software, which is transmitted and downloaded in encrypted format. Customers then enter credit card information, which is verified over a private network via a toll-free number. After authorization, a key that unlocks the software is sent to the customer. Alternatively, the cost of the software may be charged to a pre-existing account
Services. Services will be a fast-growing area of electronic commerce. For example, at least one accounting firm is currently offering consulting services electronically. For a yearly fee, subscribers can obtain a password to visit the firm’s Web site, where they can search a database of information and monitor relevant news. Subscribers can also submit questions, which are then routed to appropriate advisers from the firm’s tax, accounting and management consulting divisions.
Any discussion of tax should consider the standard tax policies that generally underline every type of tax structure to some degree. One framework that is frequently used to define good tax policy was established in 1776 by economist Adam Smith and explained in his book, The Wealth of Nations. Adam Smith’s four maxims of tax policy:
- Equality—Taxpayers should contribute towards the support of the government in proportion to the revenue they respectively enjoy under the protection of the government. Under this maxim taxpayers would pay tax in proportion to their respective abilities to pay.
- Certainty—A person’s tax liability should be certain rather than arbitrary. The rules should specify when the tax is to be paid, how it is to be paid, and the amount to be paid. Mr. Smith posited that uncertainty in the tax rules would likely encourage disrespect for the tax system.
- Convenience of payment—A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer. For example, a tax upon the purchase of goods should be assessed at the time of purchase when the person still has the choice as to whether or not to buy the goods and pay the tax.
- Economy in collection—The costs to collect a tax should be kept to a minimum. These costs include the administrative cost to the government that is influenced by the number of revenue officers necessary to administer the tax. There are also compliance costs incurred by taxpayers to consider. Mr. Smith also identified opportunity costs of a tax system, such as where the tax discouraged taxpayers from a particular business pursuit that would provide employment to others.
Additional perspectives of good tax policy—An expansion of the tax policy maxims of Adam Smith could include the following factors that state and federal legislatures often include as reasons that justify changes to the tax laws.
- Appropriate government revenues—The tax system should enable the government to determine how much tax revenue will likely be collected and when. In order to determine how much revenue will be collected, the tax system(s) should have some level of predictability. In addition, the system should be capable of raising the necessary government revenue. Finally, the system should allow options for each level of government so as not to confine them to a system that might not make sense based on their mix of industries, resources, and level of competition.
- Simplicity—The tax law should be simple to enable taxpayers to better “understand the tax consequences of their economic decisions.” Also, today, use of technology should be considered in evaluating a tax—that is, will it be simple to collect through appropriate use of computer systems? When considering state and local taxes, uniformity should also be considered to reduce or eliminate a multistate taxpayer’s complexity of dealing with multiple sets of tax rules and filing procedures.
- Neutrality—The tax law should not impact economic decisions. That is, taxpayers should not be unduly encouraged or discouraged from engaging in certain activities or taking certain courses of action primarily due to the effect of the tax law on the activity or action. For example, the tax consequence of purchasing a digitized book, should be the same as for purchasing a physical book, assuming the user views them as equivalents.
- Economic growth and efficiency—The tax should not discourage or hinder capital formation, employment, and investment.
- Transparency/Visibility—Taxpayers should know that a tax exists and how and when it is imposed upon them and others.
- Minimum tax gap—A tax should not be so complex as to cause people to incorrectly calculate their liability, and should not be easy to evade.
- Fairness—While fairness is a subjective term, a tax should at least be mostly perceived as fair.
Current tax concepts, such as permanent establishment, and source of income concepts, were developed in a different technological era. However, the principle of neutrality between physical and electronic commerce requires that existing principles of taxation be adapted to electronic commerce, taking into account the borderless world of cyberspace. An advantage of an approach based on existing principles, in addition to neutrality, is that such an approach is suitable for adaptation as an international standard. Existing principles are, in broad outline, common to most countries’ tax laws.
Bases for taxation. Most of the countries including The United States taxes income on the basis of both the source of the income and the residence of the person earning that income. U.S. source income is subject to tax when earned by foreign persons as is the worldwide income of U.S. citizens, residents, and corporations. Although U.S. persons are subject to net basis taxation on their worldwide income, the foreign tax credit provisions avoid double taxation of foreign source income. Our international tax treaty network, while attempting to minimize taxation at source, also protects against double taxation.
Source of income. Source of income concepts play a central role in international taxation since the country of source generally has a right to tax income and residence countries generally avoid double taxation through either a credit system or an exemption system. Source of income principles are generally similar worldwide. In general, the source of income is located where the economic activities creating the income occur. Residence based source rules have been adopted for certain types of income such as capital gains and swap income because the country of residence represents the location where the economic activity that produces the income occurs.Generally, the nature of an item of income is important for determining source because the source of income flows from its nature.
Role of tax treaties. The rules embodied in tax treaties generally give the residence country an unlimited right to tax income while limiting or eliminating the source country’s right to tax. One of the most important concepts in tax treaties is that of a “permanent establishment.” Source countries tend to give up their source-based taxing rights over business profits if they are not attributable to a “permanent establishment” or “fixed base” in their jurisdiction. Treaties generally limit the rate of taxation at source that can be applied to interest, dividends, and royalties paid to a resident of a treaty partner.
The ascendancy of residence-based taxation. The United States, as do most countries, asserts jurisdiction to tax based on principles of both source and residence. If double taxation is to be avoided, however, one principle must yield to the other. Therefore, through tax treaties, countries tend to restrict their source-based taxing rights with respect to foreign taxpayers in order to exercise more fully their residence-based taxing rights. This occurs in a number of ways. The permanent establishment concept represents a preference for residence based taxation by setting an appropriate threshold for source-based taxation of active business income. By setting a threshold, in most cases it is not necessary to identify the source of active business income and the income is only subject to tax in the country of residence.
Thus it is important to understand the principle of permanent establishment as being adopted by OECD as Model tax convention on Income and Capital.
Section 5 of it defines “Permanent Establishment” as:
- For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
- The term “permanent establishment” includes especially:
- a) a place of management;
- b) a branch;
- c) an office;
- d) a factory;
- e) a workshop, and
- f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
- A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.
- Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:
- a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
- b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
- c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
- d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
- e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
- f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphsa) toe), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
- Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 6 applies — is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
- An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
- The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
Difficult questions arise when applying the Treaty’s definition to e commerce. Thus the 2003 update includes changes to the commentary to Article 5 of the OECD model (Permanent Establishment) that clarify how the permanent establishment concept applies in the context of e-commerce.
The changes include the following key points:
- A web site cannot, in itself, constitute a permanent establishment.
- A web site hosting arrangement – where the web site of a business is hosted by an Internet Service Provider (ISP) – typically does not result in a permanent establishment.
- An ISP will not typically constitute a dependent agent of another enterprise so as to constitute a permanent establishment of that enterprise.
- A business that owns or leases a server will not necessarily have a permanent establishment where the server is located.
Thus the OECD Model Treaty has a fixation with the Permanent Establishment. There exist a number of conditions before a location qualifies for being called a Permanent Establishment. By referring to a website as “a combination of software and electronic data” and does not in itself constitute tangible property, the treaty has negated the concept of virtual office. The changes bought in by the commentary on article 5 duly recognize the importance of servers and the performance of core functions being performed at a location,
SALES TAX AND USE TAX
In United States sufficient nexus must exist in order for a state to subject a vendor to sales and use tax collection obligations. Nexus may be thought of as a connection between the vendor and state such that subjecting the vendor to the state’s sales tax rules is neither unfair to the vendor nor harmful to interstate commerce. These two requirements of fairness to the vendor and no impediment to interstate commerce stem from the U.S. Constitution—respectively, from the Due Process Clause and the Commerce Clause. Both of these requirements must be satisfied before a state may impose sales and use tax collection responsibilities on a vendor.
Due Process Clause “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” [14th Amendment, clause 1]
“Due process requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.” Miller Brothers Co. v. Maryland, 347 U.S. 340, 345 (1954).
“The simple but controlling question is whether the state has given anything for which it can ask return.” [National Bellas Hess, Inc. v. Dept. of Rev., 386 U.S. 756 (1967)]
Commerce Clause “The Congress shall have power … to regulate commerce with foreign nations, and among the several States, and with the Indian tribes.” [Article I, Section 8, clause 3]
Courts often refer to the “dormant Commerce Clause” because the Commerce Clause does not specifically limit state activities—it just grants power to Congress to regulate commerce. In applying the dormant Commerce Clause, the courts consider the purpose served by the Commerce Clause and “whether action taken by state or local authorities unduly threatens the values the Commerce Clause was intended to serve.” [Wardair Canada v. Florida Dept. of Revenue, 477 U.S. 1 (1986)]
Sales and Use Tax Nexus & Physical Presence
The Four-Part Test and “Substantial Nexus”
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), sets out a four-part test under which a tax on interstate commerce is valid if it—
1) is applied to an activity with a substantial nexus with the taxing state,
2) is fairly apportioned,
3) does not discriminate against interstate commerce, and
4) is fairly related to the services provided by the state.
As explained in Quill: “Due process centrally concerns the fundamental fairness of governmental activity. … In contrast, the Commerce Clause, and its nexus requirement, is informed not so much by concerns about fairness for the individual defendant as by structural concerns about the effects of state regulation on the national economy. … The Complete Auto analysis reflects these concerns about the national economy. The second and third parts of that analysis, which require fair apportionment and non-discrimination, prohibit taxes that pass an unfair share of the tax burden onto interstate commerce. The first and fourth prongs, which require a substantial nexus and a relationship between the tax and State-provided services, limit the reach of State taxing authority so as to ensure that State taxation does not unduly burden interstate commerce. Thus, the “substantial-nexus” requirement is not, like due process’ “minimum-contacts” requirement, a proxy f or notice, but rather a means for limiting state burdens on interstate commerce.”
Activity versus actor/sales tax versus income tax: “The principle that a State may not tax value earned outside its borders rests on the fundamental requirement of both the Due Process and Commerce Clauses that there be ‘some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax. Miller Brothers. Co. v. Maryland, 347 U.S. 340, 344-345 (1954). The reason the Commerce Clause includes this limit is self-evident: In a Union of 50 States, to permit each State to tax activities outside its borders would have drastic consequences for the national economy, as businesses could be subjected to severe multiple taxation. But the Due Process Clause also underlies our decisions in this area. Although our modern due process jurisprudence rejects a rigid, formalistic definition of minimum connection, we have not abandoned the requirement that, in the case of a tax on an activity, there must be a connection to the activity itself, rather than a connection only to the actor the State seeks to tax, see Quill Corp. v. North Dakota. The constitutional question in a case such as Quill Corp. is whether the State has the authority to tax the corporation at all. We are guided by the basic principle that the State’s power to tax an individual’s or corporation’s activities is justified by the “protection, opportunities and benefits” the State confers on those activities. Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444 (1940).” [Allied-Signal v. Director, Division. of Taxation, 504 U.S. 768, 778 (1992)]
Quill Corporation v. North Dakota 540 U S 298 (1992)
The Quill case involved a seller of office equipment and supplies (Quill), a Delaware corporation, with offices and warehouses in Illinois, California, and Georgia. Quill did not have any property or employees in North Dakota. Quill sold office supplies and equipment to customers in North Dakota. Quill mailed catalogs to these customers and advertised in national magazines. Under North Dakota law, Quill was required to collect use tax on its sales made to North Dakota customers because Quill was engaged in regular solicitation of customers in the state. Quill challenged the North Dakota law as violating both the Due Process Clause and the Commerce Clause of the U.S. Constitution. The U.S. Supreme Court had previously addressed the “minimum connection” requirement of the Due Process Clause back in 1967 in National Bellas Hess v. Department of Revenue of Illinois 386 U.S. 753 (1967). In that case, the Court ruled that some type of minimum contact was necessary for a state to tax an out-of-state business. The necessary minimum contact existed if the out-of-state company had a sales office or sales personnel in the state. In Quill, North Dakota challenged the 1967 ruling as being out of date with today’s ways of conducting business. Today , a company doesn’t need a salesperson in a state to obtain a sale. Instead, a catalog and a mail-order sales system can be just as successful for a company. The taxing authority in North Dakota pointed out that $1 million of Quill’s $200 million of sales were to 3,000 customers in North Dakota. Quill was also the sixth largest supplier of office supplies in the state. North Dakota also argued that it had created an economic climate that helped Quill’s sales, that it maintained a legal infrastructure to protect the market, and that it had to dispose of 24 tons of catalogs and other mail that Quill sent into the state each year. Per North Dakota, all of this created the requisite minimum connection to enable it to collect use tax from Quill without violating the due process clause of the U.S. Constitution. North Dakota was partially successful in its argument that the Bellas Hess nexus standards for sales and use tax purposes were outdated. The Court stated that its earlier tests were too formalistic and that for Due Process purposes, it would be more appropriate to not focus on physical presence, but to instead look at whether the company’s contacts with the state make it reasonable for the state to require the company to collect use tax. In Quill, the Court stated that if an out-of-state business purposefully avails itself of the benefits of an economic market in the state, it need not have a physical presence in the state to be subject to tax collection requirements in the state. Despite the Court’s relaxation of the due process physical presence requirement, the Court stated that North Dakota’s enforcement of the tax against Quill was an unconstitutional burden on interstate commerce in violation of the Commerce Clause. However, the Court pointed out that because the Constitution gives Congress the right to regulate interstate commerce, Congress could provide a mechanism to allow states to collect sales and use tax from an interstate mail-order business that was not physically present in the state, without violating the Commerce Clause.
How Much Physical Presence is Needed?
The answer to this question also depends on the law of each state because some states have specifically excluded some types of presence from creating tax obligations. For example, some states exclude presence at trade shows for a limited number of days from creating tax obligations.
- Less than a physical presence—InGoldberg v. Sweet, 488 U.S. 252 (1989), the Court stated: We doubt that States through which the telephone call’s electronic signals merely pass have a sufficient nexus to tax that call. SeeUnited Air Lines, inc. v. Mahin, 410 U.S. 623, 631 (1973) (State has no nexus to tax an airplane based solely on its flight over the State); Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 302-304 (1944) (Jackson, J., concurring)
(Same). We also doubt that termination of an interstate telephone call, by itself, provides a substantial enough nexus for a State to tax a call.”
- A 2000 ruling by the Virginia Department of Taxation (P.D. 00-53; 4/14/00), held that under Virginia law, a taxpayerdid not have nexus in the state if its only presence is the use of computer servers to host web sites. The taxpayer, a dealer of car parts, has a web page that allows customers to view and order products. The taxpayer had no physical presence in Virginia, but was contemplating using a “managed hosting” service or a “collocation hosting” service that would give the taxpayer server access in Virginia. Under both arrangements, servers would be exclusively dedicated to the taxpayer’s web site. The Tax Department held that the taxpayer met the definition of a “dealer,” but did not find that nexus (physical presence) existed where the only presence was use of a server to create or maintain a web site. The Department also noted that this holding conformed to the Internet Tax Freedom Act prohibition against discriminatory taxes. Finally, the ruling notes that Virginia buyers of car parts are subject to use tax, unless it is an exempt purchase.
In National Geographic Society v. Cal. Bd. of Equalization, 430 U.S. 555 (1977), the Court held that the presence of two advertising offices in California was sufficient to create nexus for National Geographic in California, even though the California offices were not involved with the product sales activity. The Court found the offices constituted a substantial presence in the taxing state.
Orvis v. Tax Appeals Tribunal of the State of New York and Vermont Information Processing Inc. v. Tax Appeals Tribunal, 654 N.E.2d 954 (N.Y. Ct. App. 1995), cert. denied, 516 U.S. 989 (1995)—The court overruled the lower court of New York which had held that 12 trips by employees into the state during 3 years did not constitute substantial physical presence to make the company subject to the collection of use tax (Matter of Orvis Co.. v. Tax Appeals, 204 A.D.2d 916 (App. Div. 1994)). The appellate court found that the lower court had not properly interpreted the Quill decision: “Quill simply cannot be read as equating a substantial physical presence of the
vendor in the taxing State with the substantial nexus prong of the Complete Auto test, as the Appellate Division’s [lower court’s] interpretation would require.” The court also noted: “While a physical presence of the vendor is required, it need not be substantial. Rather, it must be demonstrably more than a “slightest presence” (see, National Geographic Society v. California Bd. of Equalization, 430 U.S. 551 [(1977)]). And it may be manifested by the presence in the taxing State of the vendor’s property.
United States enacted the Internet Tax Freedom Act (ITFA) in October 1998. It imposed a three year moratorium on the state and local taxes on internet access and on any multiple or discriminatory taxes on electronic commerce. On November 2001, the Senate passed the Internet Tax Non Discrimination Act that extends the moratorium for another two years. On December 2004 , Congress made the moratorium on the state and local taxes on internet access and on any multiple or discriminatory taxes permanent.
Thousands of state and local tax systems throughout the US are notoriously parochial when it comes to defending their jurisdiction. Yet, these numbers could be significantly increased if states and local jurisdictions were allowed to tax e-commerce.Businesses would be buried in costly paperwork attempting to comply with often-conflicting tax clauses. That is precisely why the Commerce clause in the Constitution prohibits taxes which would cause an undue burden on interstate commerce.
Aside from state and local tax authorities and traditional brick-and-mortar businesses, which complain they are at a competitive disadvantage because they must collect sales taxes, there is little pressure – or enthusiasm — for internet taxation. Although state and local tax officials express grave concern that e-commerce will decimate the ability of states and localities to levy taxes on these transactions, this response may be overblown. Currently, the Commerce clause prevents states and localities from taxing remote sellers, unless they have sufficient nexus with the state. E-commerce merely extends the practice to avoid taxes by engaging in remote selling without a physical presence. It is clear that a fundamental restructuring of tax laws is needed to deal with the increasingly integrated economy of e-commerce.
Perhaps the biggest practical hurdle to taxation is whether e-commerce transactions, flying around the internet through multiple jurisdictions at the speed of light are susceptible to taxation when both the location of seller and purchaser are unknown and the medium of payment could very well be untraceable. The real question is whether governments can keep pace with technology as newer, faster and different forms of commerce emerge.